Where does Greenspan fit in?
He has promoted the housing bubble by reassuring people in public statements that there is no bubble. He also helped drive mortgage interest rates to 40-year lows earlier this year -- allowing people to spend more money on houses, which adds to price inflation and to the bubble.
The health of the economy will be the key to George W. Bush's reelection. Over the last three years, the housing market has been the driving force in the economy. Greenspan appears determined to have it keep playing that role as long as possible. But the bubble will eventually burst, leading to another recession and destroying the main source of savings for tens of millions of families. Could a responsible public official possibly pursue such a policy?
When President Bush's first tax cut was being debated before Congress in January 2001, the public anxiously awaited Greenspan's views. He told Congress that the tax cuts were a good idea and that he was worried that without them the budget surpluses would be too large and that the government would pay off the national debt too quickly.
Three years later, we face huge budget deficits. There is no reason to ask whether Greenspan -- who doesn't have to answer to anyone -- would pursue a destructive economic policy for political reasons because he has already done so.
